Markets tumble amid financial fears

In London the FTSE-100 index dropped below 5,000 for the first time since July 2005 [AFP]

The US Federal Reserve chose to leave interest rates unchanged at 2% on Tuesday, rejecting calls for a cut.

Although the US central bank had been expected to leave rates the same, some economists said a cut was a possibility following the turmoil of the last two days.

AIG fears

Speaking to Al Jazeera, Manus Cranny, a market analyst in London, said: "I don't think anybody can say this is the bottom of the market. I think there are more issues to come in terms of right downs.

"The fundamentals for all of us on a global scale are going to change in terms of what we can borrow, the terms on which we can borrow and the amount and repayment programmes.

"Better governance [is needed] and whether we go down the road of regulation is yet to be seen."

Rating agencies Standard & Poor's, Moody's and Fitch all lowered AIG's credit score, and the Wall Street said on Tuesday that people close to the situation say AIG may be forced into filing for bankruptcy if it cannot secure sufficient fresh funding by Wednesday.

Moscow suspension

In Europe, the London stock market dived 3.34 per cent in afternoon deals.

The FTSE-100 index dropped below 5,000 for the first time since July 2005, when the British capital was hit by a wave of attacks on its public transport system.

In Moscow, Russia's main RTS stock market was suspended after falling by more than 11 per cent, while Paris shed 2.12 per cent and Frankfurt lost 1.97 percent.

"Lurking close to the surface are mounting pressures on institutions and on any number of investors as the dominoes start to tumble," Patrick Bennett, an analyst at Societe Generale, said.

London and Paris had already closed down almost four per cent on Monday.

Emergency meetings

Earlier on Tuesday, officials from Asian markets had called emergency meetings as trading screens went red on the heels of the biggest one-day point loss for Wall Street's Dow Jones index since the September 11 attacks on the US.

Japanese shares dropped almost five per cent and Hong Kong shed 5.4 per cent.

Seoul shares closed 6.1 per cent lower while the South Korean currency, the won, fell 4.3 per cent against the dollar, its biggest daily drop in a decade.

Tokyo, Hong Kong and Seoul had also shut on Monday because of public holidays, meaning their losses were exaggerated as they caught up on events.

As markets tumbled, officials appealed for calm, trying to avert a panic after months of market turmoil set off by worries over US subprime, or high-risk, housing loans.